Keywords
Herding Behavior
Noise Trading
Market Sentiment
How to Cite
Abstract
This study investigates how herding behavior and noise trading impact market anomalies in the Indian stock market, particularly amid rising retail participation through digital platforms. Herding arises when investors mimic the actions of others rather than relying on independent, fundamental analysis, leading to mispricing and market inefficiencies. Noise traders, influenced by speculation, misinformation, and behavioral biases, further amplify irrational market movements. Using behavioral finance theory and empirical data from BSE and NSE, we apply the Cross-Sectional Absolute Deviation (CSAD) model and rolling-window regressions to detect herding patterns. Additionally, trading volume volatility and return correlations are analyzed to assess the presence of noise trading. Our findings reveal that herding is more pronounced during periods of heightened volatility, while noise trading appears to play a limited role in persistent market inefficiencies. The study underscores the importance of regulatory attention to investor sentiment and proposes interventions to mitigate systemic risks posed by irrational trading behavior.
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